Although the garment - textile industry has made a significant growth in recent years to prepare for the expected Trans-Pacific Partnership (TPP) Agreement, input production remains an unresolved issue when the vast majority of businesses are dependent on imported inputs. The unbalanced development is driving this industry to the risk of losing the home market to foreign direct investment (FDI) companies.
Le Duong Quang, Deputy Minister of Industry and Trade, said the garment - textile industry is calling for investors, especially foreigners, to invest and develop input sources in Vietnam to seize opportunities from the TPP.
Importing 6 billion metres of fabric annually
In 2014, the Vietnamese garment and textile industry is expected to fetch US$25 billion from exports, up 19 percent year on year. Key export markets are the US, the EU, Japan and South Korea with 49 percent, 15 percent, 12 percent and 9 percent of the share, respectively.
However, seeking and importing inputs is facing tremendous difficulties due to fierce competition from export apparel outsourcing countries. Besides, taking advantage of input scarcity, many suppliers are deliberately delaying their deliveries to raise selling prices. This move has helped them successfully raise input prices by 10 - 15 percent but it negatively impacted the progress of fulfilling export orders of Vietnamese companies.
According to statistics, Vietnam needs about 6.8 billion metres of fabric each year but the domestic source can meet just 800 million metres and 6 billion metres are offset by imports. Besides, domestic fabric is more expensive than imports and this drives many companies to foreign sources.
Hoang Ve Dung, Deputy General Director of the Vietnam National Textile and Garment Group (Vinatex), said that Vietnam's garment - textile industry meets only 2 percent of cotton demand and an eighth of cloth demand. Although the country produces 140,000 tonnes of yarn a year, its low quality also sends manufacturers to foreign suppliers.
This is the conundrum for the garment - textile industry, especially when Vietnam is preparing for the signing of TPP Agreement. Once entering TPP, companies will enjoy tax preferences given the proof of origins of yarn and fabric. It turns out to be clear that garment and textile companies must also manufacture inputs, not only do outsourcing.
To reduce dependence on foreign input supplies, Vietnam must develop supporting industries. However, although the policy to this effect has been introduced for over 10 years, it remains on paper. This is considered a bottleneck that holds up the development of Vietnamese garment and textile industry. Textile and tanning are the two fundamental fields of the garment - textile industry but modern technology and much investment capital inhibit local companies from jumping into them.
Better late than never
While domestic companies are struggling with input supply sources, many FDI enterprises with a preponderance of capital and technology are carrying out big input production projects to catch TPP tax incentives after it is signed and enacted.
On November 15, 2011, Texhong Group (China) started construction on Texhong Hai Ha Industrial Park in Quang Nam province. Costing VND4,520 billion to build, the 600-ha project in Mong Cai Border Gate Economic Zone comprises factories (nearly 300 ha), operating centres (nearly 25 ha), technical infrastructure (17ha), trees and lakes (109.51 ha), roads and reserve land (93.71 ha).
A modern complete garment - textile chain will be put into operation in 3-5 years in Texhong Hai Ha Industrial Park.
Mr. Hong Tian Zhu, President of Texhong Group, said: "The advent of Texhong Hai Ha Industrial Park is the move to lead the trend and create an important breakthrough for its Texhong globalisation strategy to build up the strongest competition on the global market.”
In spite of seeing an opportunity, it remains a challenge for Vietnamese companies to catch it to boost exports. Until the signing and enforcement of FTAs and TPP Agreement, there is still time for domestic companies to scale up their capabilities, invest in material production and complete supply chains. Changing from offshore outsourcing with heavy reliance on foreign inputs to self-reliant freight on board (FOD) and ODM (original design manufacturer) methods to meet buyers’ demands and create higher added values is a certain and prioritised way for Vietnamese garment and textile industry to go.
Source: VCCI